DECEMBER 1998

POST OF ORIGIN: MOSCOW

AUTHOR: LUDMILA MAKSIMOVA

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 1999. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES

1. Summary: On December 8, 1998, the American Chamber of Commerce in Russia held a discussion on the new developments in the Russian customs regulations. Marina Volkova, Tax Manager from Price Waterhouse/Coopers, and Igor Konkov, President of the National Customs Brokers Association, provided an update on changes in hard currency monitoring which had been recently introduced by the Russian Government and their affects on the general business climate in Russia. Russia's budgetary crisis and declining customs collections are driving Russian officials to attempt to tight hard currency regulations. Meanwhile, Russian exporters are hiding more of their export earnings overseas and recent Russian court rulings have invalidated key customs regulations. End summary.

2. According to the speakers, hard currency remittances into Russia have been falling sharply as a percent of import proceeds. They dropped from 12 percent in 1994 to 8 percent in 1995 and 5 percent in 1996-1997. After the August devaluation of the ruble, Russian firms have been trying to keep their hard currency earnings in their bank accounts abroad in violation of government rules. Although the money remitted to Russia from abroad has become one of the few reliable sources of hard currency revenue, the legal framework for enforcement of customs collections have recently been invalidated by Russian courts.

3. On December 3, 1998, the Supreme Court of the Russian Federation declared Instruction #19, which was the major document of government control over hard currency earnings from export operations, invalid because it also had not been registered with the Ministry of Justice. According to the Instruction #19, Russian exporters were required to fill out several documents for the State Customs Committee, including passport of exportation which contained data on the exporter, name and address of the foreign company, terms and conditions of contract and its total value. Data on payments for exported goods and volumes of goods shipped out of Russia had to be submitted to the Division of Hard Currency Control of the State Customs Committee which monitored currency control by calculating the difference between the amounts paid for the goods and the total value of exported goods. The decision makes the submission of the passport of exportation and data on payments unnecessary. Such step means that control over hard currency transactions will be less tight which may lead to further drop in hard currency remittances.

4. Instruction #30 of July 26, 1995, which regulates importation of goods into Russia, may be also be struck down for the same reason. According to the instruction, Russian importers are obliged to fill out transport documentation, a purchase agreement and a passport of importation. The Division of Hard Currency Control of the State Customs Committee executes control over import operations the same way it controls export transactions: it calculates difference between the amounts paid for the imported goods and the total volume of imported goods.

5. There are several types of transactions which are not subject to the procedure for currency control. They include the following:
- importation of goods from CIS countries;
- payment for goods in roubles;
- importation of goods under the Customs regimes other than "release into free circulation" and "re-import";
- exportation of goods under the Customs regime other than "export" (for example, re-export, temporary export, etc.);
- importation or exportation of work, services or results of intellectual activities;
- importation of goods with payment under credit agreements signed by the Government of the Russian Federation;
- importation of goods under lease agreements.

6. The Russian government has been enforcing penalties for violation of currency legislation. There are generally two types of currency violations. In the first case, the exporter who does not report payment for exported goods during 180 days after shipment is obliged to pay 100 percent of the underpaid amount. In the second case, the importer who does not receive the goods after payment for them during 180 days is obliged to pay penalty equal to 100 percent of cost of goods which were not imported. Customs authorities assess penalties for first offenses and may reduce these by as much as 50 percent or more under negotiation. Federal Service of Currency handles repeat offenders and will not reduce its penalties.

7. At present, Customs authorities are attempting to simplify and streamline customs procedures, while they are also attempting to curb tax evasion and tax avoidance. The role of penalties in customs practices is increasing producing an adverse influence on the participants of international trade relations. In such situation the role of customs brokers whose goal is to help companies execute customs clearance is growing.

8. According to Mr. Konkov of the National Customs Brokers Association, the rights of the foreign trade participants against customs authorities are not properly protected. For example, importers are obliged to make advance payments of import duties which are deposited on special bank accounts and then automatically transferred to the budget revenues. If for some reason goods are not shipped into the country and payments should be returned, it is a slow and difficult process to obtain a refund.

9. The speakers pointed out that in the current environment of legal instability, direct formal inquiries to customs may be the only way to obtain authoritative information on rates and regulations. Customs authorities usually respond to such inquiries, but they take a month to do so. For an official answer, contact the Committee directly by mailing the request to the following address:

Valery Draganov, Head
State Customs Committee
1A Komsomolskaya Pl.
Moscow 107842, Russia

10. For information on customs laws and rules and informal interpretations, contact the following associations:

National Customs Brokers Association
Contact: Igor Konkov, President
2 Leninsky Prospekt, Office # 308
Tel./Fax: 7-095-247-2304
Tel: &-095-247-6016
E-mail: info@targo.ru
Website: //www.natb.ru

ZAO Grouppa Targo
Contact: Tatayna Zabrovskaya, Specialist on Customs Issues or
Yevgenia Danilina, Specialist on Customs Issues
ZAO Grouppa Targo
e-mail: targo@aha.ru
Tel.: 7-095-247-2304/2304, 230-4574

Art Franczek, AIBEC
Co-Chair of Customs Committee of
the American Chamber of Commerce
Tel./Fax: 7 (095) 373-6241
e-mail: artf@online.ru

11. Customs rates and procedures are likely to remain extremely volatile for the foreseeable future. While the senior leadership of Customs is attempting to make reforms, the agencies legal framework for enforcement is in jeopardy and it is under increasing pressure to make higher collections.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)